You must evaluate a proposal to buy a new milling machine. The base price is $175,000, and shipping and installation costs would add another $6,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $113,750. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $43,000 per year. The marginal tax rate is 35%, and the WACC is 14%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   2. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   3. The cost of research is an incremental cash flow and should be included in the analysis.
   4. Only the tax effect of the research expenses should be included in the analysis.
   5. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   
   -Select-IIIIIIIVV

2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
   $

3. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Year 1 $

   Year 2 $

   Year 3 $

4. Should the machine be purchased?
   -Select-YesNo

An asset is purchased on January 1 for $48,700. It is expected to have a useful life of five years after which it will have an expected residual value of $6,800. The company uses the straight-line method. If it is sold for $33,600 exactly two years after it is purchased, the company will record a:

loss of $13,440.

gain of $1,660.

loss of $1,660.

gain of $13,440.

credit to the Vehicles account for $4,170.

loss of $2,040.

gain of $2,040.

credit to Accumulated Depreciation for $9,130.

B. Darin Company purchased a truck and trailer for $54,000. The appraised values of the truck and trailer are $38,000 and $19,000, respectively. What is the amount of the cost that should be assigned to the trailer?

$19,000

$18,000

$16,000

$22,000

Computing Cost of Goods Sold and Ending Inventory.

Bartov Corporation reports the following beginning inventory and purchases for 2017

Bartov sells 600 of these units in 2017. Compute its cost of goods sold for 2017 and the ending inventory reported on its 2017 balance sheet under each of the following inventory costing methods. (Do not round until final answer. Round to the nearest whole number.)

You have been hired as a capital budgeting analyst by Advent Sports, a sporting goods firm that manufactures athletic shoes. The firm believes it can generate another $10 million per year over the next 10 years by investing $10 million in a new distribution system (which will be depreciated over the system's 10-year life to a salvage value of zero). The firm will also need an initial increase of $1 million in net working capital to take on this project. The company expects its variable costs associated with these sales to be 40% of revenues, and additional advertising costs are anticipated to be $1 million per year. The firm is in the 40% tax bracket and has a hurdle rate of 8%. What is the project's NPV expected to be?

Select one:

A. $12,277,470

B. $14,556,754

C. $15,876,943

D. $17,834,221

Please dont do the problem in Excel. I need the step by step process how to do this by hand.

An investor is considering purchasing a Treasury bond with a 20 year maturity, an 8% coupon and a 9% required rate of return. The bond pays interest semiannually.

a)What is the bond's modified duration?

b)If promised yields rise 25 basis points immediately after the purchase what is the predicted price change in dollars based on the bond's duration?

(please solve with formula not the macauly duration chart)

Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and interest is compounded semiannually. If similar bonds in the market yield 7.8 percent, what is the value of these bonds? (Round answer to 2 decimal places, e.g. 15.25.)

Cullumber Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 11.2 percent? (Round answer to 2 decimal places, e.g. 15.25.)

The Blossom Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 9.825percent. The current market rate for similar securities is 11.3 percent. Assume that the face value of the bond is $1,000.

Excel Template
(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.

What is the current market value of one of these bonds?

What will be the bond’s price if rates in the market (i) decrease to 9.30 percent or (ii) increase to 12.3 percent?

How do the interest rate changes affect premium bonds and discount bonds? Bonds, in general, INCREASE OR DECREASE price when interest rates go up. When interest rates decrease, bond prices INCREASE OR DECREASE.

Suppose the bond were to mature in 12 years. What will be the bond’s price if rates in the market (i) decrease to 9.30 percent or (ii) increase to 12.3 percent? (Round answers to 2 decimal places, e.g. 15.25.)   

Please answer all 4 parts of this question

John Johnson just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Crane Corp. that pays an annual coupon rate of 5.0 percent. If the current market rate is 9.00 percent, what is the maximum amount John should be willing to pay for this bond?

Sheridan, Inc., has issued a three-year bond that pays a coupon rate of 8.5 percent. Coupon payments are made semiannually. Given the market rate of interest of 4.2 percent, what is the market value of the bond? (Round answer to 2 decimal places, e.g. 15.25.)

Pharoah Inc. has seven-year bonds outstanding that pay a 12 percent coupon rate. Investors buying these bonds today can expect to earn a yield to maturity of 6.350 percent. What is the current value of these bonds? Assume annual coupon payments.

Sharon Lee is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 9.7 percent. Assume annual coupon payments. What is the current value of this bond? (Round answer to 2 decimal places, e.g. 15.25.)

A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 4 years at $1,042.15, and currently sell at a price of $1,083.62. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

YTM: %

YTC: %

What return should investors expect to earn on these bonds?

Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.

Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.

Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.

A bond has a $1,000 par value, 10 years to maturity, and an 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Round your answer to two decimal places.

%

Assume that the yield to maturity remains constant for the next three years. What will the price be 3 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

$

The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period:

Month Madison Cookies Sophie Electric

1 -0.06 0.05

2 0.04 -0.02

3 -0.07 -0.07

4 0.14 0.16

5 -0.03 -0.08

6 0.06 0.03

Compute the following. Do not round intermediate calculations. Round your answers to four decimal places.

A. Average monthly rate of return R̅i for each stock.

B. Standard deviation of returns for each stock.

C. Covariance between the rates of return.

D. The correlation coefficient between the rates of return.

E. Would these two stocks be good choices for diversification? Why or why not?

If a corporation has limited capital to use for project investment, but it has more projects than the available capital will support and these projects will earn above the cost of capital, should it ration capital (to do fewer projects) or borrow (to do all projects)? Explain your answer.